Selecting a Long-term Care Policy

Met Life Building_New York City_20090828
Met Life Building_New York City_20090828

Long-term care is given either in a specialized nursing facility or in the home for certain activities of daily living or some type of cognitive impairment. Activities of daily living include things such as eating, bathing or dressing, where cognitive impairment is a condition that requires you to have significant supervision to protect yourself and others from threats to health and safety. Many times cognitive impairment is associated with some type of mental incapacity such as Alzheimer's disease. Currently, half of all nursing home residents have Alzheimer’s disease or a related disorder.5 Consider these sobering facts relative to nursing home care on a national basis:

  • After age 65, a woman has a one-in-two chance of spending time in a nursing home. A man has a one-in-three chance because of his lower life expectancy. 2
  • The average stay for those Americans in a nursing home is two-and-a-half years. 4
  • Nationally, the average cost of a nursing home is approximately $200 per day. 7
  • On an annualized basis then, the cost of a nursing home could approach $70,000. 7

As a result of these statistics, fifty percent of all couples and 70 percent of single persons are impoverished within one year of entering a nursing home.1 It is clear, that for our country, this issue is not going to go away. By the year 2030, the number of Americans 65 and older will more than double to about 72 million.3 To protect one’s family wealth and to assemble a comprehensive retirement plan, many Americans are considering insurance that would protect them in the event that they must one day enter a nursing home.

This type of insurance is known as long-term care protection, which many professionals consider to be a critical component of a sound retirement plan. However, it is somewhat challenging to shop for such insurance because of the many features that can be included in any given policy design.

In this article we will explore how to select a long-term care policy that will meet your needs at a reasonable cost. In future articles, we will spend some time reviewing how business owners can purchase long-term care in a tax advantage manner.

Above all, it is important to consider the strength and stability of the insurance company offering the policy. Although this would seem to be an obvious consideration, the insurance company’s ultimate ability to pay policyholder claims is worth investigating. One excellent source for evaluating an insurance company’s strength and stability is the AM Best Company. You may want to begin your evaluation of potential insurance carriers by visiting their website at Companies receiving the AM Best rating of A+ or higher are considered superior and would make a sound choice for providing your nursing home protection insurance.

After you’re comfortable with the strength of the company providing the long term care insurance, your work has just begun. From a design standpoint, consider next the daily benefit amount that you select for the long-term care insurance policy. Pricing for all long-term care insurance policies is driven by this amount. Because long-term care costs differ by region, you should begin by determining the average daily cost of a nursing home in your area. As we’ve already noted, the average cost of a nursing home on a national basis is $200.00 per day.

Costs are also based upon the quality of the facility and the type of care it provides. For example, the cost for skilled nursing home care is considerably more expensive than the cost of intermediate care. Skilled care is that in which patients receive around-the-clock attention from licensed medical professionals. Intermediate care is that in which patients receive assistance with the activities of daily living, such as eating, bathing, and transferring from bed to chair.

Once you’ve determined the average daily benefit amount that you’d like to select for the long-term care insurance policy, you should consider the benefit period that you’d like to include on the policy. This is the length of time in which you’d receive benefits in the event that you had to enter a nursing home. Remember that the average stay in a nursing home nationally is two-and- a-half years. Consequently, it may not be advisable to have a benefit period that was less than three years. Not surprisingly, the longer the benefit period on the insurance policy, the greater the cost of the coverage. Most insurance companies give policyholders the option of selecting a variety of benefit periods ranging from as little as one year to a lifetime unlimited benefit period.

The next item that the policy buyer must consider is the waiting period. This is the length of time that a policyholder must wait to receive benefits after having actually entered the nursing home. Waiting periods can range from zero days to 180 days. Many people select a 90 or 100 day waiting period because there is a possibility that Medicare may pay some portion of the first 100 days for skilled nursing care. Logically, the longer the waiting period the lower the premium cost for the coverage.

After making decisions regarding the insurance carrier, the daily benefit amount, the benefit period, and the waiting period, new policyholders are generally asked if they would like to include inflation protection on the nursing home protection policy. Inflation protection ensures that the daily benefit amount keeps pace with the rising cost of a nursing home stay in future years. Because the cost of nursing home protection rises annually, this provision is highly recommended by insurance professionals.

In many parts of the country, the cost of a stay in a nursing home rises much faster than the general inflation rate. By selecting inflation protection as an option, policyholders can feel more comfortable knowing that the original daily benefit amount they selected will increase by a fixed percentage each year. Therefore, if an insured has to enter a nursing home 15 years after the policy was purchased and the cost of a stay in a nursing home in that future year has doubled, by selecting this option, it will help the insured’s daily benefit amount keep pace with rising costs.

As the long-term care industry has evolved, prospective policyholders have been asked to consider many new features that have appeared. For example, most people, given the chance, would prefer to receive nursing care in their home for as long as possible prior to entering the nursing home. Fortunately, most modern long-term care policies include home healthcare riders that allow people to do just that. Sometimes this home health care benefit is included in the base cost of the policy; other times an additional rider must be specifically purchased.

Another concept that has become very popular in nursing home care policies over the last ten years is that of community-based care. Typically, this is care given in an adult day care facility. These facilities provide nursing care for those needing it while the caregiver enjoys the opportunity to go to work during the day, comfortable in the knowledge that their loved one needing care is being taken care of.

Some nursing home care policies will even pay for modifications to an insured’s home that would enable policyholders to delay having to enter a skilled nursing facility. Potential modifications might include things such as railings in showers, wheelchair ramps or medical alert systems.

In conclusion, shopping for long-term care insurance policies is sometimes challenging because so many different options may be available on the policy. To ensure accurate comparisons of companies, policyholders must make sure that they are comparing identical provisions with regard to benefit amount, benefit period, waiting period and inflation protection. For people who may find it difficult to make these comparisons on their own, it may make sense to retain an independent insurance agent who has access to multiple carriers and who can assist with comparison shopping.

Whether those who are considering long-term care insurance decide to seek professional advice or go it alone, it is critical that they carefully analyze policy options and all other design considerations. Only by doing so can they make the best use of their dollars.


1. 2. 3. U.S. Department of Health and Human Services Administration on Aging 4. 5. National Nursing Home Survey. National Center for Health Statistics, 1985; p. 49. 6. National Institute on Aging 7. 2004 Met Life Market Survey of Nursing Home and Home Care Costs


Dean Piccirillo offers insurance products through HBK Sorce Insurance LLC. Investment advisory services are offered through HBK Sorce Advisory LLC d/b/a HBKS Wealth Advisors. Mr. Piccirillo is not able to transact business in a state that he is not licensed or registered.